MIT Dean: Economy On Brink

Declaring, "no country can run a trade deficit forever," MIT economist Lester Thurow yesterday said Americans will suffer a sharp reduction in their standard of living due to the recent economic crisis.

Thurow, the dean of the Sloan School of Management at MIT, said the United States economy collapsed because we have been running it on credit.

"The operative question is how long the Germans and the Japanese will loan us money," Thurow said, adding that when when they stop payments, "Toyotas will be priced like Mercedes. Mercedes will be priced like Lamborghinis, and Lamborghinis will be priced like an MX missle." A declining dollar will make it impossible for Americans to continue importing goods, and thus end the trade deficit, he said.

"Remember Bangledesh has no problem with trade deficits, only their workers earn, in terms of the American dollar, 20 cents a day," the economist told an audience of executives at a computer conference at the Charles Hotel. He predicted an American shrinkage in standard of living, of about 8 or 9 percent.

"It won't be another Great Depression, but it just won't be a recession either," Thurow said.

While painting this bleak picture of the American economy, Thurow said last week's stock market crash was a symptom of the underlying instability produced by our trade deficit. He said the stock market was overvalued, and crashed because of government policies designed to hold off a worldwide economic collapse.

"Either the stock market crashes or the dollar crashes," Thurow said.

Likewise, the MIT economist said that recent efforts by Congress and the President to balance the budget, without addressing trade imbalances, are economic palliatives which will further endanger the economy.

Thurow, author of the "Zero Sum Society," said the world is entering what he called a "black hole," which will pull economies down and turn traditional rules on their head.

As an example, he said America is well on itsway to becoming a "lowwage" country, which "makesbad goods, but does it very cheaply." Depending onexchange rates, Japan and Germany even today paytheir workers more than American workers, Thurowsaid.

Another peculiarity of history, which Thurowsaid was the root of America's problems, was thatpostWorld War II efforts by the United States torebuild its former-enemies worked toosuccessfully.

"It was based on a naive notion that wealthleads to democracy," he said.

Not only has America failed to compete underthe system it created, it is not prepared to dealin a world where the United States is only one ofmany equal players.

"The U.S. doesn't have an effortless technicalsuperiority that it used to have, and it has acompetitor who plays to win," he said.

As remedy to the imminent decline of America inthe world economy, Thurow said the governmentwould have to reform laws and industrial researchpolicies to compete better with Japan.

"It makes a difference if you have a legalsystem that ties you up in knots," he said.America is often excluded from developing newproducts, like the digital tape recorder, becauseof long-term lawsuits which delay theirconstruction.

He added that the economy would continue tostagnate until Japan, Germany and the UnitedStates, agreed to work together to stimulate theworld economy.

"The economy cannot work as it is nowstructured, and the world is very reluctant toplay by new rules," he said.

He said Japan would have to agree to import andconsume more, America would have to competebetter, and Germany would have to stimulate itsown economy, in order for the world to set a neweconomic course.

"The question is are we willing to join theworld economy," he said